The market has priced in too much pessimism about South Korea's future.
For years, South Korean equities have traded in the shadow of their regional peers, their value quietly discounted by markets that have grown accustomed to overlooking them. Now, in late 2023, Goldman Sachs has stepped forward to name that neglect as opportunity — forecasting that South Korea's Kospi will deliver the highest earnings growth across Asia-Pacific in 2024, carried upward by a semiconductor sector long battered but now poised to turn. The argument is as old as markets themselves: what has been left behind, if the fundamentals hold, is often what rises next.
- South Korea's Kospi sits below a price-to-book ratio of 1.0, a quiet signal that the market has been pricing in more doubt than the underlying economy may deserve.
- The semiconductor sector — home to giants like Samsung and SK Hynix — has endured a brutal cycle of oversupply and collapsing demand, dragging the broader market into a prolonged earnings slump.
- Goldman Sachs is now projecting a 54% surge in earnings per share for 2024, followed by another 20% in 2025, staking its forecast on the belief that the chip cycle is finally turning.
- Defense stocks have emerged alongside semiconductors as a high-conviction sector, with regional geopolitical tensions adding a second engine to the potential rally.
- The investment bank has placed an overweight recommendation on South Korean equities, arguing that the so-called 'Korea discount' has embedded too much pessimism into prices that could look remarkably cheap in hindsight.
South Korean stocks have spent much of the past year overlooked and underpriced at the edges of Asia-Pacific markets. In late November 2023, Goldman Sachs moved to reframe that neglect as an opening, forecasting that South Korea's equity markets would deliver the highest earnings growth in the region through 2024 — a projection anchored in the expected recovery of the country's beleaguered semiconductor industry.
The numbers reflect a market that has been quietly left behind. The Kospi trades at a price-to-book ratio of 0.92, dipping below the threshold that typically signals fair value, giving shape to what analysts have long called the 'Korea discount' — a persistent gap between what South Korean companies fetch and what comparable firms command elsewhere in the region. For Asia's fourth-largest economy, it is a stubborn and somewhat puzzling undervaluation.
Goldman's forecast projects 54% earnings per share growth for the Kospi in 2024, with an additional 20% expansion in 2025. The thesis rests on the semiconductor cycle turning: memory chip prices have been suppressed by oversupply and weak demand, but Goldman sees stabilization ahead, which would lift the earnings of Samsung, SK Hynix, and the broader market along with them.
Defense stocks round out the investment bank's conviction, with regional tensions continuing to drive military spending and offering a second source of potential upside. Goldman maintained an overweight position on South Korean equities overall — a signal that it believes the market has priced in far too much pessimism. The 'Korea discount' has endured through multiple cycles, shaped by governance concerns, concentrated conglomerates, and a lack of the growth narrative that draws investors elsewhere. Goldman's argument, plainly stated, is that 2024 may be the year that discount finally earns its correction.
South Korean stocks have spent the better part of a year sitting in the corner of Asia-Pacific markets, overlooked and underpriced. Goldman Sachs sees an opportunity in that neglect. The investment bank released a forecast in late November 2023 arguing that South Korea's equity markets are poised to deliver the highest earnings growth across the entire Asia-Pacific region in 2024—a claim built largely on the anticipated recovery of the country's semiconductor sector, which has been battered by steep profit declines.
The numbers tell the story of a market that has been left behind. South Korea's Kospi benchmark index trades at a price-to-book ratio of 0.92, a metric that signals undervaluation when it dips below 1.0. The price-to-earnings ratio sits at 18.93. These valuations have created what analysts sometimes call the "Korea discount"—a persistent gap between what the market pays for South Korean stocks and what similar companies fetch elsewhere in the region. It's a puzzle that has frustrated investors and analysts for years, particularly given that South Korea is Asia's fourth-largest economy.
Goldman Sachs is betting that puzzle is about to resolve itself. The firm forecasts earnings per share growth of 54 percent for the Kospi in 2024, followed by an additional 20 percent expansion in 2025. That rebound hinges on the semiconductor industry shaking off its recent downturn. South Korea's chip makers—Samsung and SK Hynix chief among them—have been caught in a brutal cycle of oversupply and weak demand, but Goldman sees that cycle turning. As memory chip prices stabilize and demand picks up, so too will the earnings of the companies that produce them.
Defense stocks emerged as another area of particular interest in Goldman's analysis. The investment bank maintained an overweight position on South Korean equities overall, signaling confidence that the market offers better risk-adjusted returns than other options in the region. That confidence rests on a simple premise: the market has priced in too much pessimism. Investors have grown accustomed to viewing South Korea as a mature, slow-growth economy, and that perception has become embedded in stock prices. But if the semiconductor sector does recover as expected, and if defense spending continues to rise amid regional tensions, those prices could look cheap in retrospect.
The "Korea discount" has been a source of frustration for decades. South Korean companies often trade at lower multiples than their peers in Japan, Taiwan, or Australia, despite comparable or superior fundamentals. Some analysts attribute this to structural factors—foreign ownership restrictions, corporate governance concerns, or simply the fact that South Korea lacks the brand recognition of Japan or the growth narrative of China. Others point to the sheer dominance of a handful of conglomerates, which can make the market feel concentrated and opaque to outsiders. Whatever the cause, the discount has persisted through multiple market cycles.
Goldman's forecast amounts to a bet that 2024 will be the year that discount finally narrows. The semiconductor recovery is the linchpin. If chip prices stabilize and demand rebounds as expected, earnings will surge, and valuations will have to adjust upward. Defense stocks could provide additional upside if geopolitical tensions on the Korean peninsula continue to drive military spending. The investment bank's overweight recommendation suggests it believes the risk-reward calculation has shifted decisively in favor of South Korean equities. For investors who have avoided the market because it felt too cheap to be true, Goldman is making the case that cheap is exactly what it looks like—an opportunity, not a warning.
Notable Quotes
Goldman Sachs forecasts EPS growth to rebound to 54% in 2024 and to grow 20% further in 2025 for Korea's Kospi benchmark index.— Goldman Sachs
The Hearth Conversation Another angle on the story
Why has South Korea been so overlooked? It's the fourth-largest economy in Asia.
The market has a long memory of disappointment. South Korean stocks have traded at a discount for years, and that perception becomes self-fulfilling. Investors avoid them because they're cheap, which keeps them cheap.
But Goldman is saying 2024 is different. What changes?
The semiconductor sector. It's been in freefall—memory chip prices collapsed, demand dried up. But that cycle doesn't last forever. When it turns, earnings will explode. A 54 percent rebound is enormous.
That's a big forecast. How confident is Goldman in that number?
Confident enough to stay overweight on the market. But it's conditional. The forecast assumes the chip cycle actually recovers. If it doesn't, the thesis falls apart.
What about defense stocks? That seems like a separate bet.
It is. Regional tensions are real, and South Korea spends on defense. But it's secondary to the semiconductor story. The chip recovery is what makes the market attractive.
So the "Korea discount" is about to disappear?
If earnings grow 54 percent and the market reprices, yes. But that's the bet. The discount has been there for decades. Breaking it requires something to actually change.